Frequently Asked Questions JSE

SHARES

What is a share? 

A Share is a unit of ownership interest in a company. When you buy or receive shares in a company, you become a part owner of that company. This is also known as having equity in that company. The more shares you have in relation to the total number of shares issued by the company, the more of the company you own. For example, if a company has issued 10,000 shares and you own 100 of those shares, then you are a 1.0% owner. If another person owns1,000 shares, then the person is a 10.0% owner. People who own shares in a company are referred to collectively as “shareholders” or “stockholders”. A company may also be authorized to issue more than one class of common stock or shares, some of which may not have voting rights. (Not all companies have this provision.)

What is a Dividend and how is it determined? 

A dividend is a proportionate distribution of earnings (profits) of a company to its shareholders. With common (ordinary) shares or stocks, the rate of the dividend varies with the company’s performance and with the amount of cash on hand. With preferred stocks or shares, the rate is fixed. The Board of Directors of the company decides the amount of the dividends to be paid out. They may also decide to hold back some or all of the profits to expand the company’s operations. Dividends can be paid quarterly, half yearly or once per year.

Why do companies issue shares? 

Companies issue shares for different reasons. The main reason, however, is to raise capital – or money. A company may need start–up capital. It may need to repay debts or to expand. A company may also want to widen its ownership base. When you buy shares you enable the company to carry on its business using your money. The number of shares which a company is authorized to issue is set out in its Memorandum and Articles of Association and can only be increased with the consent of shareholders in a General Meeting.

Why do people buy shares?

People buy shares for different reasons. However, the principal reason is to get the best returns on their investments, whether over the long or short term. As a rule, it is wise to regard shares as long-term investments

What are the risks involved?

Every investment has an element of risk and buying and selling shares is not an exception. Anyone who buys shares should be aware that, although the value of each share can go up, especially over the long term, the value may also go down. It depends, among other things, on the performance of the company, the value that investors in general place on owning that company’s shares and on general economic conditions within the country.

Where can I buy shares?
Contact a stockbroker (a person whose business it is to buy and sell shares) at one of the brokerage firms authorized by the Jamaica Stock Exchange to operate in Jamaica. You can visit or telephone the broker, informing him/her which shares and how many you wish to purchase. Your broker is your link with the market, he or she will buy or sell according to your orders.

What are some of the things I should do before and after I buy shares? 

No one can guarantee success in the market. However, the possibility of success can be improved if, before investing in shares, you:

  • Collect and study as much information as possible about the company in which you intend to invest.
  • Seek professional investment advice from a broker or other qualified persons.
  • Learn how to read and understand the basic financial statements and reports which the companies listed on the Stock Exchange are required to publish.
  • Develop the habit of reading and understanding the financial publications.
  • After buying shares, monitor and track your investments by maintaining a daily stock work sheet.
 
How do I buy or sell shares? 

Contact your broker and advise him or her to buy or sell shares on your behalf. Give him or her clear instructions, whether orally or in writing. The buying/selling process begins when you place the order with your stockbroker for a specified number of shares in a company. There are three types of orders that you can place:

  • A market order – asks your broker to buy or sell stock at the market price.
  • A limit order – sets the price at which you want stocks to be bought or sold.
  • A stop order – which gives an approximate buying or selling price of stock. When the approximate price is reached the stop order becomes a market order.
 
What is a Bonus Issue? 

The process whereby money from a company’s reserves is converted into share capital which is then distributed to shareholders in proportion to their existingholdings. A bonus issue is also known as a script or capitalization issue.

What is a Stock Split? 

This is the division of the existing shares of a company into a larger number of shares, without changing the capitalization of the company. Each new stock will now be worth less depending on the ratio of the split. For example, if a stock with a market value of $10.00 splits for 4 to 1, each new stock will be worth one fourth of the previous price or $2.50 and each shareholder would get four shares for every one they owned previously. And, if the company had, let’s say one million shares outstanding before the split, it would now have four million shares outstanding worth the same dollar amount of the one million shares. Usually, the rationale for stock split is that the lower priced stock might make the company more attractive to investors.

How do I pay?

You will receive a contract note that states the company whose stocks you have bought or sold, the price paid or received, the commission and other fees and the settlement date. You should pay your bill by the settlement date.

How much do you have to earn to buy shares?

A person from any income level, who has some amount of surplus funds available – no matter how small, may decide to invest in the stock market. A principal rule is never invest any money you will need to pay your bills and other immediate living expenses. You will need to keep the money you need for your living expenses in a more liquid or immediately available manner.

What is the Record Date? 

It is the date by which a shareholder must be officially recorded on the company’s share register in order to be entitled to a dividend, bonus, right or other distribution.

What is a bond?

A bond is an interest-bearing government or corporate debt security. It is a loan from the purchaser to the issuer which obligates the issuer to pay the bondholder a fixed interest at specific intervals and to repay the principal upon maturity. A bond issued by a company has no corporate ownership privileges as in the case of shares.

 

STOCKBROKERS

Why can’t I just buy my own Stocks at the Stock Exchange? 

The broker acts on behalf of a person who wishes to buy or sell shares. It is more costly to buy stock without going through a stockbroker. Shares not traded on the Jamaica Stock Exchange will attract Stamp Duty and Transfer Tax. These charges are considerably higher than the customary brokerage fees. It therefore suits an investor to work through a stockbroker who can also give advice about the specific securities of interest.

What are the licensing requirements for a Stockbroker? 

To become a stockbroker, a company has to be admitted to membership by the Council of the Jamaica Stock Exchange. Senior executives, shareholders and employees dealing with the public have to pass a “ Fit and Proper” test and the firm has to meet certain basic financial requirements on an ongoing basis. Only approved representatives of stock broking firms will be allowed to trade on the floor of the Jamaica Stock Exchange. Further, trading through a broker will be beneficial to you as you can get the use of a centralised market place.

Who is a Stockbroker?

A stockbroker (sometimes shortened to broker) is the direct link between the client and the stock market. Orders to buy and sell shares on the stock exchange are handled exclusively by him. He provides investment advice and acts as an agent for people who wish to buy or sell shares. A commission is charged for these services.

What will the Stockbroker do for me? 

Your stockbroker, on your instructions, carries out your orders to buy or sell stocks. Some brokerage houses also provide you with regular information about market conditions affecting investment, research material and advice as to which stock to buy or sell. He or she will also help you to keep an accurate and complete record of all your market transactions. After each transaction on your behalf, your broker will also send you complete details. Although brokers can provide you with information about a particular stock, it is really up to you to choose which stocks to buy or sell.

How much do Stockbrokers charge?

Your stockbroker charges a fee called a commission, each time you buy and sell a stock. Commissions are used to pay for your broker’s salary and for the services the firm provides. When you buy you pay your broker for the value of the stock plus the commission and other charges. When you sell your stock, you receive the value of the stock less the commission and other charges. The commission charged is agreed upon between the stockbroker and the client. Since March 1994, all commissions including those charged on corporate bonds, stock and block transactions were deregulated. Besides the broker’s commission, the other charges attached to the purchase and sale of shares are: the Jamaica Stock Exchange Cess of 0.15625 % on either side of the transaction. General Consumption Tax of 15 per cent is charged on both the commission and the Jamaica Stock Exchange’s Cess.

How else do Brokers earn income? 

They can earn additional income by providing advisory and investment management services to clients.

What does this mean for me? 

The immediate advantage to you is convenience. Reducing the time before a transaction is completed means it will be posted to your account more quickly. Payment to your stockbroker must be made before settlement. That means your stockbroker may require that a certain amount of money be on hand in your account so you can settle more quickly. Otherwise, other arrangements may have to be made to ensure your transactions can be rapidly settled. Similarly, when selling securities you must ensure you can deliver the securities to your stockbroker. For most individuals this is a problem because they actually hold share or bond certificates physically. Instead, they should keep their securities in “street name”.

SECURITIES

What do you mean by keeping securities in street name? 

Internationally, most people who own securities today don’t physically hold the stock or bond certificates. Instead their securities are kept on their behalf by their stockbroker which is called keeping securities in “street name”. The stockbroker will deposit your shares and bond certificates with the JCSD which, on the settlement day, will electronically settle all purchases and sales of shares and bonds without physically moving the certificates.

How do I decide on a Stockbroker?

A stockbroker is like any professional. You should deal with the broker with whom you feel most comfortable and in whom you have the most confidence. In order to help determine this, first you need to establish your criteria, then speak with several brokers, and consult other investors. Some firms advertise in the newspapers or business publications and are listed in the Yellow Pages of the telephone directory. A list of the Jamaica Stock Exchange members’ firms is on Page 11 of this booklet.

How can I get the best services from my Stockbroker? 

By stating clearly up-front what your investment objectives are and then asking the broker how he/she would go about meeting those expectations. Thereafter show an interest in your account, seek your broker’s advice, honour your agreements and settle your transactions on a timely basis.

How do I start to buy shares? 

Before you can buy or sell stock you must open an account. You might want to arrange a personal meeting with your broker at his firm’s offices.

What do I need to know about the Jamaica Central Securities Depository? 

The JCSD, a wholly owned subsidiary of the Jamaica Stock Exchange, is a facility for holding securities which enables share transactions to be processed by book entry. A book entry system is an accounting system which facilitates the change of ownership of securities electronically between parties, without the need for movement of physical documents. In short, the JCSD is an electronic means of recording the ownership of shares.

If I am dissatisfied with my present Broker, how would I go about changing him/her? 

First, select a new broker whom you believe will be better likely or able to meet your objectives; settle all outstanding transactions with your previous broker; advise her/him of your intention to cease as well as your areas of dissatisfaction.

How am I protected if my Broker’s business should go into bankruptcy? 

You are protected under civil law and the Compensation Fund administered by the Jamaica Stock Exchange, specifically for that purpose. ( Please refer to Jamaica Stock Exchange’s brochure on “The Compensation Fund” ). However, the Council of the Jamaica Stock Exchange monitors the financial situation of all brokers. When the Exchange sees fit, it can act on an a priori basis to prevent a broker from continuing to trade before a situation becomes critical.

Is it necessary to enter into a written contract with a Broker for his/her services?

It is advisable that clients have a written understanding between themselves and their brokers.

How can I find out what stocks my Broker has invested for him/herself?

You can ask your broker to disclose this information. However, under the Securities Act 1993 brokers are required to divulge their holdings or interest in any security which they may be recommending to you.

What are the basic functions of the Stock Exchange?
  • To provide an additional channel for encouraging and mobilizing domestic savings.
  • To foster the growth of the domestic financial services sector.
  • To provide savers with greater opportunities to protect themselves against inflation.
  • To increase the overall efficiency of investment.
  • To facilitate privatization.
  • To improve the gearing of the domestic corporate sector and help reduce corporate dependence on borrowing.
 
How did the concept of a Stock Market develop?

 The institutional beginning of stock exchanges appeared during the 12th century in Paris spreading to the great trading centres of the world – Amsterdam, Great Britain, Denmark, Germany and France during the 16th and 17th centuries. The growth of trade created a need for banks and insurance companies. A combination of expanding activity and intermittent capital shortages stimulated the early issuers of securities: governments, banks, insurance companies and some joint stock enterprises, particularly the great trading companies. From the existing exchanges of commercial bills and notes it was an easy transition to the establishment of stock exchanges for securities. By the early 1600’s shares of the Dutch East India Company were being traded in Amsterdam and in 1773 London Stock Dealers moved into their own building. By the 19th century, trading in securities on a formal basis was common in industrial nations. Today, trading is conducted on over 120 stock markets worldwide.

THE STOCK EXCHANGE

What Is A Stock Exchange? 

A  stock exchange is simply a marketplace where securities, that is, shares, stocks or bonds are bought and sold – quickly, efficiently and under strict regulations for the protection of investors.

How did the Jamaica Stock Exchange begin?

Before the Jamaica Stock Exchange began, Jamaicans would buy and sell shares of corporations and companies through banks, lawyers and other individuals. The Kingston Stock Market was established in 1961 under the guidance of the Bank of Jamaica, to co-ordinate the activities of traders, or persons who bought and sold shares on behalf of individuals. The Jamaica Stock Exchange itself, began operations in February 1969 with one of its roles being to promote the development of a vibrant capital market and to ensure orderly trading in listed securities, that is stocks, shares or bonds that are traded on a stock exchange. The first official trade on the Jamaica Stock Exchange took place on Monday, February 3, 1969.

Is the Jamaica Stock Exchange a Government Entity?

No. The Jamaica Stock Exchange is a privately-owned, limited liability company. The Bank of Jamaica was very active in the formation of the Stock Exchange and had taken part in all the pre-incorporation discussions and negotiations. In the past the Central Bank provided operating personnel for the Jamaica Stock Exchange which was accommodated at rented premises in the B.O.J. However, over the years the role of the B.O.J. has deliberately decreased and today the Jamaica Stock Exchange occupies its own building at 40 Harbour Street, Kingston with its own personnel.

What is the structure of the Jamaica Stock Exchange? 

The Jamaica Stock Exchange is governed by a Council (Board of Directors) which comprises: the Governor of the Bank of Jamaica (or his representative); a representative of the Ministry of Finance & Planning; up to ten seat–holders and any three persons other than seatholders. The Chairman and Deputy Chairman are elected by the Council annually. The General Manager /Secretary is in charge of the day-to-day operations of the Jamaica Stock Exchange.

Do all Jamaican companies have shares traded on the Jamaica Stock Exchange?

No. On any exchange, only the stocks of those public companies that are listed are traded. That means a company must apply to the Jamaica Stock Exchange and be approved to have its shares traded. A company considering listing on the Jamaica Stock Exchange must meet the Exchange’s listing requirements which include a minimum level of capitalization and the submission of detailed financial reports.

What is the role of the council of the Jamaica Stock Exchange?

 The Council is a self-regulatory body that monitors the activities of the stock market. The Council’s functions include:

  • Setting guidelines and rules of operations at the Exchange to ensure that the stock market and its broker-members operate at the highest possible standards.
  • To determine the shares to be listed on the exchange. In this regard, the Council has the power to suspend companies which violate the rules of the Exchange from trading, or to de–list companies which fail to meet the requirements of the Jamaica Stock Exchange.

The decisions of the Council are arrived at on the basis of a majority vote.

What makes the price of shares go up and down on the Stock Market?

Share prices are determined by supply and demand and on the confidence investors have in their value. If there are more orders to buy a share than offers to sell, the price will go up. If there are more offers to sell than to buy, the price goes down. The decision to buy or sell depends on the investor’s overall opinion as to the future prospects of a company’s shares. This opinion is formed and influenced by factors such as the company’s growth prospects; the type of industry, individual and corporate taxes and capital market conditions.

When does trading take place on the Jamaica Stock Exchange?

Trading on the Jamaica Stock Exchange is conducted on Mondays to Fridays between 9:30 a.m. and 1:00 p.m. A computerized trading platform was introduced in January 2000.

How are shares traded? 

The Jamaica Stock Exchange operates like any other stock market in the world. You choose a stockbroker, decide on a stock and place your order to buy or sell with your broker. Once this is done, your broker will purchase or sell your shares. The trade is complete when a buying broker and a selling broker decide on a reasonable price for the order.

Where is the Jamaica Stock Exchange located?

The Jamaica Stock Exchange is located at 40 Harbour Street, Kingston. There is a public gallery from which trading can be viewed during the hours of trading. The Jamaica Stock Exchange also offers a tour and talk about the Jamaica Stock Exchange and the stock market to schools and other groups.